Navigating Exit Planning Fees: Strategies & Tips for Advisors

Fri, 01/27/2023 - 08:00

Written by: mernzen

For over 25 years, BEI has been dedicated to assisting advisors in strengthening their connections with business-owning clients and providing the necessary tools to help reach their goals.

The BEI team frequently engages in conversations with professional advisors, exploring how incorporating Exit Planning can enhance their core offerings, differentiate them from competitors, and provide a new way to approach clients. However, despite the benefits of Exit Planning, many advisors struggle with the question of how to properly charge for these services and come to us for guidance.

Navigating the complexities of fee structures can be challenging, particularly in the Exit Planning space where different pricing strategies are prevalent. Many advisors may find it difficult to decide on the most appropriate method and how it will be received by clients and prospects.

Pricing Strategies 

Over the years, we have observed a diverse range of fee structures used by advisors within the BEI Network. Some advisors choose to align their Exit Planning strategy with their existing fee schedule for other services offered in their practice, while others opt for a unique approach. To assist advisors in this process, we have compiled a list of some of the most commonly used fee methods:

  • The All-In Strategy

Completing one specific aspect of an Exit Plan, such as creating Business Continuity Instructions or a Value Driver Report would qualify for this method. This approach is often used for charging on a project basis or for business owners who are still far from their exit date.

  • The 50-50 Strategy 

This fee method involves collecting 50% of the fee upfront and the rest upon completion of the project. Alternatively, this method could be implemented by billing 33% of the fee every month for a three-month period or 25% of the fee for four months. 

  • Retainer Strategy 

The advisor and the business owner come to a mutual agreement on a fixed monthly fee for a specific duration, typically on an annual basis.

  • The Phase-Creation Strategy

This method involves breaking the Exit Plan creation and the implementation process into multiple “phases,” and the business owner would pay as you enter and complete each phase.  

  • The Hybrid-Pricing Strategy 

This approach asks for a sum up front (e.g., 25% of the proposed total fee), and then the balance is on a retainer agreement. 

  • Hourly Pricing Strategy 

While project billing has a higher perceived value in the mind of the business owner, many advisors are more comfortable charging an hourly fee as they do with their existing practice work.

  • Bonus Ideas on Pricing Strategy 

An Exit Planning Advisor could offer the business owner a “credit” of the Exit Planning fees towards any fees they would get as a result of their effort. You also have the option to add a “success fee” as a percentage of the selling price onto your Exit Planning fee. 

Selecting the Right Strategy 

While the above list provides common strategies from the BEI Network of advisors, it is by no means a comprehensive list. At the 2022 BEI National Conference in a session titled, “Recipes for Success: Pricing Strategies,” attendees heard four different takes on pricing based on each presenter’s practice specialty and preference. 

Terry Staley, CPA with MarksNelson, offered his informal method to charging fees: The estimated total cost of the comprehensive Exit Plan is given using the BEI fee estimator tool, which typically falls within the $30,000 range based on his location and clientele.

His team then charges consultative fees by the hour as they complete different phases of the plan. In Terry’s opinion, “If you bring excellent service and provide a tangible value, you can charge what you feel is fair, whatever that might be.” 

At the end of this session and along those same lines, BEI Founder John Brown posed the quote: “Value-based pricing is customer-focused, meaning that it is done based on how much the customer believes the planning is worth.” 

Whichever strategy you decide best suits your practice, it is key to find a satisfactory pricing strategy that ultimately provides value to your clients. 

Business Owner Feedback to Fees

Regardless of your chosen pricing method, how do you manage fee aversion from your clients? 

  1. Be transparent. Being honest about what exactly an owner is getting and what deliverables are included in the engagement letter or other signed agreements helps to manage client expectations. 
  2. Research your audience. As with any aspects of consulting or advisory services, knowing your target audience is key to proposing an appropriate fee. Considering geographic location, business size, and annual revenue, among many things, can help determine an applicable, yet competitive strategy. 
  3. Understand their resistance. While you have justifications for your method of charging fees, it’s helpful to keep in mind why each client might prefer one strategy vs. another. It may be that having a monthly retainer helps keep the owner accountable for Exit Planning tasks, or they might appreciate paying per project if their timeline spans several years. 

Pose Your Price as an Investment 

Understand & Articulate Your Value

What is more important than the actual fees you charge is the relationship that you are building and forming with your clients. Your unique value proposition as an Exit Planning Advisor is to help your owner clients get out of their business when they want, with the money they need, transitioning to whom they want. 

Therefore, it isn’t about justifying a price for the amount of work you will do, it is about allowing the business owner to place a value on the benefits they receive. You are selling a solution. 

Put the Price in Perspective for Your Client 

Simply put, if you are saving or making your client money, there will be no need to justify your fees. But, providing excellent service, tax savings, improved cash flow, higher price of sale, etc. sometimes still does not add up for them. 

It may be helpful to relate your cost to a common expense in order to give perspective. “The cost I am proposing for your comprehensive Exit Plan is less than the salary of your personal assistant or office cleaning staff.” 

Or, you could also relate your fees to your client’s revenues: “The investment of $15,000 for your Exit Plan is only one half of 1% of your gross revenues.” 

Every business owner has a different mindset, but posing your price as an investment helps to promote peace of mind as they prepare for the transition of their business. 

BEI Tools 

Due to the complex nature of charging fees, BEI offers several tools to Members to assist with this undertaking. 

BEI Fee Estimator Tool 

This tool is a 10-question assessment that generates a proposed fee based on the answers. Once you input information (i.e, company's gross revenue, number of employees, etc.), the tool suggests a fee based on the complexity of the recommended Exit Plan.  This tool provides the total proposed for the complete, comprehensive Exit Plan. It is then up to you as the advisor to come up with a strategy that works for both you and your client, as well as determine additional fees for implementation based on your client’s needs. 

Engagement Proposal Letter 

Sending a formal, detailed proposal letter is an important factor in engaging and retaining clients. Using this tool to map out all that you will be providing is crucial in your client understanding what they are paying for. BEI has several templates created that you can customize for each client based on what deliverables you plan to offer. 

EPIC Recommendations:

Lastly, BEI Members with a Planning or Full License are familiar with the outputs received using the EPIC software. Each recommendation is based on a values-based goal of the business owner and can be used as line-item deliverables within your engagement proposal letter. 

To schedule a meeting with a member of the BEI team to discuss these tools further or to schedule a live demo of the planning software, follow the link below! 

 

Schedule a Meeting

Summary 

In the end, not having a plan in place can be far more costly for a business owner than the fee you might charge.  A Forbes article addressing business owners said, “Developing and putting into action an Exit Plan sounds like a lot of work, and it can be. However, you only get to sell each company you own once, so developing a plan is essential to get you more money for your investment and hard work.”

With the understanding that you, as the Exit Planning Advisor, are ensuring an owner’s peace of mind, remember the following points about fees: 

  • There is not an “incorrect” method to charging fees. If the strategy works for your practice and your clients are willing to pay it, great! 
  • By using the tips of transparency, audience research, and owner-specific considerations, you are better positioned to avoid fee-aversion. 
  • Know your value as an advisor. You are providing an important service with significant ROI - business owners need your expertise!  
  • Keep your client in mind and be able to rationalize and reason with them to find a fee structure that is mutually beneficial. 

navigating exit planning fees

Proactive or Passive: What Kind of Advisor Are You?

Fri, 01/13/2023 - 08:00

Written by: mernzen

We find that professional advisors typically read this blog for two purposes. They want to:

1.     Grow and perhaps redirect their practices to focus on representing business owners.

2.     Improve their ability to help owners increase and preserve the value of their companies and eventually exit them on their terms.

Many advisors haven’t been able to accomplish either for a variety of reasons. One which they may not have considered: advisor passivity when confronted with owner passivity.

Most owners simply don’t spend the time or the money necessary to take action to position their businesses and themselves to exit successfully. Instead, they respond to the idea of business Exit Planning with some variation of:

·       “How can I drain the swamp when I’m up to my ears in alligators?”

·       “My company is worth more than enough, so I can exit whenever I want!”

·       “I can never exit because the business can’t run without me.” 

These owners seldom initiate planning or take action aimed at exiting successfully.

It’s clear that most will not approach you to talk about Exit Planning. So, what can you do if you want to use your expertise in Exit Planning to grow your practice and/or improve your ability to help your clients execute the most important financial event of their lives?

Be proactive.

 

Defining Proactive

Asking owners about their plans to exit “someday” is not proactive. Taking responsibility for helping owners achieve their goals through a successful business exit is.

Being proactive is not being pushy or obnoxious, rather, it is recognizing your responsibility to make forward progression in the best interests of your clients. Since most owners don’t take steps to prepare for their business exits in a timely fashion, we need to encourage, support, and guide them.

How do you take initiative in a way that demonstrates to owners that you are working in their best interest? How do we convert some-day-but-not-today owners into Exit Planning clients?

Consider the advice of architect and inventor, Buckminster Fuller.

“If you want to teach people [owners] a new way of thinking [about exiting], don't bother trying to teach them. Instead give them a tool, the use of which will lead to new ways of thinking."

--Buckminster Fuller

 

What’s in your Toolbox?

What tools can you give owners to lead them to a new way of thinking and acting about leaving their businesses?

First, become knowledgeable in a proven planning process that optimizes owners’ odds of reaching their exit goals:

Goal 1:  Leaving their companies when they want

Goal 2:  Leaving their companies with the money they want

Goal 3:  Putting their companies in the hands of the successor(s) they choose.

Second, tell owners about the benefits of this process and your willingness to share your expertise. Suggest that you begin by simply understanding their goals and the types of exit strategies that might work best for them. Offer to assess the financial resources they currently have and determine what must be done to close any financial or other gap that would prevent them from exiting on their terms. 

Let’s say you are working with an owner and you determine that there’s a $2 million gap between the resources they want (or need) to live the post-exit life they desire, and the resources they will likely have on the date they want to exit. To address this gap, you can introduce them to the tools you can use to motivate members of their management to grow the value of their company at the pace needed to close that gap.

BEI has an assessment tool that quickly and easily identifies an owner’s chief concerns and tools to address and resolve those concerns. In addition,  BEI’s planning software contains dozens of recommendations that advisors can customize and use to address their clients’ specific Exit Planning goals. One example is to create a non-qualified deferred compensation plan, another is to consider a stock purchase or stock bonus plan. Further, BEI provides training on when and why to make each recommendation.

 

Passive or Proactive?

There is no reason for you to wait until your clients and prospective owner-clients think they have the time or money or need to begin planning their business exits.

  • Exit planning isn’t a “some-day-but-not-today” issue. As Members of BEI’s Network of Exit Planning Advisors  know, without a plan in place, few owners will achieve the three fundamental ownership goals of leaving their companies:
    1. when they want,
    2. for the money they want and
    3. in the hands of the successor(s) they choose—much less other goals they may have for themselves, their family members and companies.
  • Unlike owners who don’t know how to reach their goals, trained Exit Planning Advisors have a toolbox full of strategies they can use for that purpose.

Passive advisors wait, and wait, and wait for owners to approach them and ask for help orchestrating their business exits. Proactive advisors equip themselves with the tools they need to reach out and help their clients and then put those tools to work.

 

The Bottom Line

Skilled Exit Planning Advisors live in a different world and have varying priorities than advisors who lack this expertise. Without knowing whether an owner wants to exit this Friday or 10 years from now, Exit Planning Advisors educate owners about the benefits of Exit Planning and their ability to design successful Exit Plans. 

You can do the same. 

You can use Exit Planning to grow your practice and make a meaningful difference in the lives of your business owner clients by helping them increase and preserve the value of their companies and eventually exit them on their terms.
 

One tip to being a proactive advisor is to stay up to date with current trends and market updates. Check out the latest BEI Business Owner Survey to familiarize yourself with the takeaways and share insights with your clients and prospects.
Download the 2022 BEI Business Owner Survey

Be a Proactive Advisor